Case Note & Summary
The Supreme Court dismissed Civil Appeal No. 19936 of 2017 challenging the order of the Securities Appellate Tribunal which had upheld SEBI's direction that Yatra Art Fund Trusts were Collective Investment Schemes. The case involved two trusts, Yatra Art Fund Trust (Fund I) and Yatra Art Fund II (Fund II), created under the Indian Trusts Act, 1882, to pool investor funds for investment in works of art. SEBI issued a show cause notice in 2007 alleging that these were unregistered Collective Investment Schemes. After a prolonged process, SEBI's whole-time member passed an order on 06.11.2015 directing the funds to refund monies with 10% interest, restrain from accessing securities market for 4 years, and submit inventory. The Securities Appellate Tribunal partly set aside certain directions but remanded the refund direction for reconsideration. The appellant argued that Section 11AA of the SEBI Act uses the word 'company' and not 'person', and since the funds were trusts, they fell outside the definition. The Supreme Court rejected this argument, noting that Section 12(1B) uses 'person' and the CIS Regulations define 'Collective Investment Management Company' broadly. The court found it difficult to interfere with concurrent findings that the schemes were Collective Investment Schemes and dismissed the appeal.
Headnote
A) Securities Law - Collective Investment Scheme - Definition - Trust as 'Person' - Section 11AA, Section 12(1B) SEBI Act, 1992 - The court held that the argument that Section 11AA uses the word 'company' and not 'person' is untenable in light of Section 12(1B) which uses 'person' and the CIS Regulations which define 'Collective Investment Management Company' broadly. The trust-based art funds were held to be Collective Investment Schemes despite not being in corporate form. (Paras 6-8)
B) Securities Law - Collective Investment Scheme - Concurrent Findings - Appeal - The court declined to interfere with concurrent findings of SEBI and the Securities Appellate Tribunal that the schemes were Collective Investment Schemes, as the appellant could not demonstrate that the schemes were not Collective Investment Schemes. (Para 6)
Issue of Consideration
Whether a trust-based art fund constitutes a Collective Investment Scheme under the SEBI Act, 1992, and whether the use of the word 'company' in Section 11AA excludes trusts from the definition of Collective Investment Scheme.
Final Decision
Civil Appeal No. 54 of 2016 was allowed to be withdrawn. Civil Appeal No. 19936 of 2017 was dismissed. The court declined to interfere with concurrent findings that the schemes were Collective Investment Schemes.
Law Points
- Collective Investment Scheme
- Trust as person
- Section 11AA SEBI Act
- Section 12(1B) SEBI Act
- CIS Regulations 1999
- Regulation 2(h) CIS Regulations
Case Details
Civil Appeal No. 54 of 2016, Civil Appeal No. 19936 of 2017, Civil Appeal No. 77 of 2018
Shri K.V. Vishwanathan (for appellant), Shri C. U. Singh (for respondent-SEBI)
Osians Connoisseurs of Art Pvt. Ltd. (in CA 54/2016); Yatra Art Fund (in CA 19936/2017)
Securities and Exchange Board of India & Anr.
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Nature of Litigation
Appeal against SEBI order declaring art funds as Collective Investment Schemes and directing refund to investors.
Remedy Sought
Appellant sought to set aside SEBI's order and the Securities Appellate Tribunal's order upholding the same.
Filing Reason
SEBI issued show cause notice and later order declaring Yatra Art Fund Trusts as unregistered Collective Investment Schemes, directing refund and other actions.
Previous Decisions
SEBI whole-time member order dated 06.11.2015; Securities Appellate Tribunal order dated 21.08.2017 remanding refund direction but upholding scheme classification.
Issues
Whether the trust-based art funds constitute Collective Investment Schemes under the SEBI Act, 1992.
Whether the use of the word 'company' in Section 11AA excludes trusts from the definition of Collective Investment Scheme.
Submissions/Arguments
Appellant argued that Section 11AA uses 'company' and not 'person', so trusts are not covered; schemes were not Collective Investment Schemes.
Respondent-SEBI argued that Section 12(1B) uses 'person' and CIS Regulations define 'Collective Investment Management Company' broadly, covering trusts.
Ratio Decidendi
The argument that Section 11AA of the SEBI Act uses the word 'company' and not 'person' is untenable in light of Section 12(1B) which uses 'person' and the CIS Regulations which define 'Collective Investment Management Company' broadly. Trusts can be Collective Investment Schemes under the SEBI Act.
Judgment Excerpts
Based on the aforesaid, Shri Vishwanathan argued that it would not be possible for him to fall foul of the law considering that Section 11AA uses the word 'company' and not 'person', and as his client carried on this business in the form of a Trust, the provisions of SEBI Act would not be attracted at all. This argument would fly in the face of both Section 12(1B) and the CIS Regulations, in particular, Regulation 2(h)...
It is difficult, therefore, to interfere with the concurrent findings made in this behalf by both SEBI and the Appellate Tribunal.
Procedural History
SEBI issued show cause notice on 12.10.2007; after hearing, whole-time member passed order on 06.11.2015; appeal to Securities Appellate Tribunal disposed on 21.08.2017; further appeal to Supreme Court.
Acts & Sections
- Securities and Exchange Board of India Act, 1992: Section 11, Section 11AA, Section 12(1B), Section 19
- SEBI (Collective Investment Scheme) Regulations, 1999: Regulation 2(h), Regulation 3, Regulation 65
- Indian Trusts Act, 1882:
